Regulatory: EPA enforcement in the energy sector and beyond

In the first installment of this series, we focused on the Environmental Protection Agency’s (EPA) continued regulation of the electric utility sector during the second term of the Obama administration. This article looks beyond the electric utility sector to other areas of anticipated EPA action during President Obama’s second term. Importantly, we believe that many of the administration’s actions during the second term will impact the broader “energy” sector, including petroleum refining and pipeline distribution of petroleum products. Beyond the energy sector, we believe that water quality issues and environmental justice will be at the forefront of the EPA’s agenda through the second term.

Refinery Initiative

The EPA’s Refinery Initiative, which targets air pollution at oil and gas refineries under the Clean Air Act, has been ongoing since 2000. Although the EPA has negotiated more than 30 Refinery Initiative consent decrees involving more than 100 individual refineries, the EPA continues to pursue refiners that have not participated in the Refinery Initiative or that the agency believes have violated the terms of their consent decrees. Within the past year, the EPA and the Department of Justice (DOJ) have announced several significant Refinery Initiative settlements. Additional enforcement actions appear likely in 2013. The

EPA’s Refinery Initiative targets sulfur dioxide, nitrogen oxide, benzene and volatile organic compound emissions from fluidized catalytic cracking units, flares, sulfur recovery units and fuel gas combustion devices (including heaters and boilers). The EPA often brings claims against refiners pursuant to the Clean Air Act’s New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants, but refiners may also face New Source Review claims that require permitting and installation of Best Available Control Technology. Recent refinery settlements have required implementation of advanced leak detection and repair monitoring programs and improvements in flare efficiency.

Pipeline and Hazardous Materials Safety Administration

Some 2.6 million miles of pipeline cross the country, and that number is increasing as new sources of liquid fuels are uncovered and brought to market in the hydraulic fracturing boom of North America. Almost all of the natural gas we use in the U.S. is delivered by pipeline, and 70 percent of the gasoline, oil and jet fuel the nation consumes is also delivered by pipeline. The Pipeline and Hazardous Materials Safety Administration (PHMSA), which is part of the Department of Transportation, appears poised to increase its enforcement and inspection activity following the passage of the Pipeline Safety Act of 2011 and a request by President Obama to increase PHMSA’s budget by $75 million above fiscal year 2012 levels. The act provides PHMSA with increased authority to review and improve pipeline safety in the wake of several high-profile pipeline incidents in San Bruno, California; Allentown, Pennsylvania; and Marshall, Michigan. The act significantly increases the maximum civil penalties for pipeline violations and tasks PHMSA with studying pipeline safety technology, including integrity management and leak detection systems. On Dec. 5, 2012, PHMSA issued an advisory bulletin reminding pipeline operators of their responsibilities to use meaningful performance metrics in evaluating integrity management programs, signaling that increased enforcement of integrity management programs may be near.

Water Quality

The EPA is likely to continue its aggressive enforcement of the Clean Water Act against point sources that discharge pollutants into “waters of the United States” (i.e.“navigable waters”) in violation of National Pollution Discharge Elimination System (NPDES) permitting requirements. NPDES permits, which are tailored to the activities and operations of the permittee, include strict effluent discharge limits, facility management practices and recordkeeping requirements. One of the EPA’s ongoing national enforcement priorities under the Clean Water Act is reducing the number of discharges from the nation’s rapidly deteriorating sewer and stormwater infrastructure. The EPA and the DOJ have brought dozens of sewer and stormwater-related enforcement actions, obtaining billions of dollars in infrastructure improvements and millions in penalties against localities across the country.

The EPA is also likely to continue targeting combined animal feeding operations (CAFOs) for discharges that impact water quality in the nation’s streams, rivers, lakes and bays (notably including Chesapeake Bay). The EPA is currently reviewing its CAFO regulations pursuant to Section 610 of the Regulatory Flexibility Act and is expected to issue revised regulations later this year. The new regulations may target small and medium-sized CAFOs including small farms, dairies and even racetracks. CAFOs may push back against NPDES permitting requirements and enforcement actions if they can establish that they do not discharge effluent or their discharges do not reach “waters of the United States.” See National Pork Producers Council v. EPA.

Environmental Justice Initiative

The EPA defines “environmental justice” as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” In more practical terms, “environmental justice” focuses on the disproportionate levels of heavily-polluting activities and industry in economically disadvantaged and minority communities.

The Obama administration has renewed the federal government’s commitment to environmental justice by re-establishing an environmental justice interagency working group and requiring each agency to develop an environmental justice strategy and report progress on environmental justice issues. The EPA’s environmental justice strategy includes the goals of incorporating environmental justice considerations into the EPA’s rulemaking, permitting, community programs, and compliance and enforcement decisions. In the enforcement context, the EPA has indicated that it intends to advance environmental justice goals by targeting and developing compliance and enforcement actions, seeking appropriate remedies that benefit overburdened communities, and enhancing communications with environmental justice communities. The EPA has specifically identified sewer overflows, CAFO discharges and air toxin violations as disproportionally impacting environmental justice communities. The EPA and the DOJ are performing outreach to environmental justice communities in enforcement cases and have incorporated environmental justice considerations into remedies and supplemental environmental projects. We believe this focus will continue, particularly in the area of urban toxins such as lead.